Evidence of a weakening Chinese economy and feeble data from Australia and Britain reinforced fears of a prolonged global recession on Tuesday, as policymakers groped for a co-ordinated response to the downturn.
China's inflation fell to a 17-month low of 4 percent in October, while trade figures were expected to show slowing imports, both serving as signs of a cooling economy and dampening hopes that China's growth will help cushion the impact of the global downturn.
"It shows the Chinese economy is in a sharp slowdown -- production is falling, so is demand," said Zhang Yongjun, an economist with a government think-tank in Beijing, after the inflation data.
A fresh wave of gloom gripped equity markets as investors, already spooked by worries about the darkening outlook for U.S. corporate giants such as Goldman Sachs and Google , dumped shares in Japan, Australia and Hong Kong.
Expectations that profits will be hit hard by a long, deep recession cut short a brief spell of optimism on Monday that had been sparked by China's weekend announcement of a nearly $600 billion stimulus package.
What began as a financial crisis last year, when bank lending dried up in the face of huge losses in the U.S. housing market, is morphing into a broad downturn in the developed world. New powers such as China have been caught up in the domino effect.
A survey of business conditions from National Australia Bank showed confidence at a record low, stoking expectations the country is heading for its first recession since the early 1990s.
"It appears that the continuing volatility in global equity markets, emergency financial packages, falling commodity prices, and talk of global recession have finally broken business optimism and now fear reigns supreme," said Alan Oster, group chief economist at NAB.
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In Japan, exports fell nearly 10 percent in the first 20 days of October, adding to the evidence that the world's second biggest economy was teetering on the brink of recession.
British retail sales fell for a fifth straight month in October and by the biggest amount in more than three years, a survey released on Tuesday showed.
"These are seriously poor numbers, especially in the run-up to Christmas," said Stephen Robertson, director general of the British Retail Consortium.
In South Korea, the customs service said exports in the first 10 days of November fell 26 percent from the same period a year ago.
Stock Markets Sag
Major Asian stock markets fell, with Japan's Nikkei 225 Average down 3.3 percent and Australia's S&P/ASX 200 Index losing 3.9 percent.
U.S. shares had fallen on Monday after Deutsche Bank said the equity value of once-mighty General Motors was now zero, sending its stock to a 62-year low and analysts warned Goldman could post its first quarterly loss.
Fannie Mae said it was losing money so fast it may need to tap government cash to avoid shutting down as it posted a record $29 billion quarterly loss.
"It's ugly out there and it's not going to be over tomorrow. It's going to take some time," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania.
"Talk on the Street about Goldman's numbers, the latest analyst comments on GM -- there was just a whole lot of negative corporate news today. Investors are still really nervous."
Leaders of the world's major economies meet in Washington on Saturday to discuss long-term solutions to the crisis following a series of coordinated moves on interest rates and to recapitalise banks in a bid to fight the financial turmoil.
Britain's Prime Minister Gordon Brown, a long-time advocate of reforming international financial institutions, said policymakers should seize the opportunity the crisis presented.
"Uniquely in this global age, it is now in our power to come together so that 2008 is remembered not just for the failure of a financial crash that engulfed the world but for the resilience and optimism with which we faced the storm, endured it and prevailed," he said in a speech in London on Monday night.
The flow of funds through money markets picked up on Monday, indicating that the worst of the global credit freeze may be over and focusing attention on the looming recession.
Bank-to-bank lending rates for dollar, euro and sterling funds, as well as the premium for those funds over expected policy rates mostly fell, and dealers reported a slightly increase in activity.
"The interbank funding market is generally loosening up a bit," said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey. "In general, things have been improving."
But economists see the U.S. economy headed for a recession that will be deeper and last longer than those of 2001 and 1990-1991 according to the monthly Blue Chip Economic Indicators, a closely watched survey.
"Some of our panelists believe it may (rival) the 1981-1982 downturn ... Job losses seem destined to remain sizable over coming months as the recession continues to take its toll," the newsletter said.